30 GLOBEST. REAL ESTATE FORUM OCTOBER 2020
The National Apartment Association and the New Civil Liberties
Alliance are challenging the order in court and are seeking a stay
until arguments can be heard. But given the constitutional powers
at stake in this case, one can assume any court case is facing a long
slog through the legal system.
The apartment industry is already hurting from the crisis, NAAPresident and CEO Bob Pinnegar says.
Small mom-and-pop landlords have reported lower rent collections this year, with 25% of them borrowing money to cover operating costs, according to a survey by The National Association ofHispanic Real Estate Professionals and UC Berkeley’s TernerCenter for Housing Innovation.
Landlords of affordable housing—a category that is supposed to
be recession resistant—are also reporting lower rent collections and
Pinnegar says there is a real risk that this housing stock could be
significantly reduced by the time the pandemic has passed. If apart-
ments that have been financed with tax credits go into foreclosure,
the bank is the entity that will decide if it keeps the affordable hous-
ing mandate, Pinnegar says. Even market rate properties have a
similar risk, he adds. “If a property goes into foreclosure, the resi-
dent will still be there and who will want to buy that? There could be
a severe loss of units.”
Institutional landlords also have their problems although
they have not been as badly affected as they tend to own class A
and class B properties, which have generally been unscathed
from the economic dislocation resulting from the pandemic. Yet
there has been a steady decline of people paying their rent at
the first of the month, Pinnegar notes, and the institutional
investors are starting to see some fraying in their portfolios as
well. “Based on the conversations that I have been having with
them, they have people with financial hardship but it is not as
But there is starting to be more movement in rent trackers show-
ing fewer and later payments from class A and class B tenants. Many
of these individuals are accumulating mounting rent debt, which is
significant, Pinnegar says, and it is unclear whether these tenants
will be able to repay. “Either the landlord gets a judgment against
the individual and likely won’t be able to collect or the tenant will
A CASE FOR HOPE
Despite all this, multifamily is still considered to be, along with industrial, a top performer for commercial real estate and there are several reasons why it is expected to prevail over its growing pressures.
For instance, Deermount notes that private-market multifamily
asset values have held up remarkably well thus far through the
pandemic, despite rent collection and concession issues in some
markets. ”When coupled with low interest rates, relatively aggres-
sive leverage and interest only terms available from the GSEs, this
has allowed sponsors and investors to continue to underwrite pro-
spective acquisitions very aggressively.”
Jared Wolff, president and CEO of Banc of California, echoes
“In Southern California, multifamily is holding up remarkably
well notwithstanding the economic and political headwinds,” he
says. “It is still viewed as a safe-haven for investors desiring yield,
given demographics and supply, and there is a tremendous amount
of liquidity looking to be invested.”
Wolff does point out that the West Coast has suffered a bit more
in terms of collections than other parts of the country due to both
legislative efforts and the fact that rents are higher, in actual dollars
and as a percentage of income.
Still, the perception that the pandemic will subside has not
caused cap rates to rise much, and historically low interest rates
continue to drive interest in the asset class, he continues.
“Refinancing volume has slowed somewhat as rent predictability
has made it challenging for lenders to properly size loans, but
stronger operators are still getting refinancings done. We are also
seeing stronger operators take advantage of the dislocation by seek-
ing to buy properties from less seasoned operators who don’t have
the financial resources or operational capability to carry properties
that are underperforming.”
Indeed, it is easy to see there is a healthy flow of capital in the
market. To cite just one example, Blackfin Real Estate Investors
and their equity partner, GMF Capital recently secured a $57.6 mil-
lion refi of Coastline Apartments, a 600-unit multifamily commu-
nity in Virginia Beach, VA. NKF Multifamily Capital Markets man-
aging director George Wisecarver and vice chairman Steven Leitch
arranged the Freddie Mac financing.
Blackfin purchased the property in February 2019, and madesignificant property upgrades, after which they were able toincrease occupancy and rents. “This was a tremendous value-addover a very short period,” said Wisecarver.
A quick perusal of NKF Research shows that in Q2 the multifamily sector was, despite the drop, a top-performing property type forrent collection since the onset of COVID- 19 and the only propertytype to exceed 90% rent collections each month since April. It alsonoted that the sector’s total debt originations by Fannie Mae andFreddie Mac rose to $39.8 billion as the market stabilized in partdue to Federal Reserve policy.
Ultimately, multifamily will emerge from the slowdown with areputation relatively intact among investors, Green Street’sPawlowski said. “When dust settles on this downturn investors willstill be able to use the resilient label for apartments versus other bigproperty types.” ◆
IN SOUTHERN CALIFORNIA,MULTIFAMILY IS HOLDINGUP REMARKABLY WELLNOTWITHSTANDING THE ECONOMICAND POLITICAL HEADWINDS.”
PRESIDENT AND CEO OF BANC OF CALIFORNIA